Written Case Analysis

Name: Andrew C. Ponte

Chapter / Topic: Chapter 4 / Cost-Volume-Profit Analysis: A Managerial
Planning Tool
Case Number: Case 4-55 (Ethics and a Cost-Volume-Profit Application)
Date submitted: January 5, 2019

Case requirements:

1. Break-even point:
Process 1: $100,000 / ($30 - $10) = 5,000 cases
Process 2: $ 200,000 / ($30 - $6) = 8,333 cases

2.
Let X be the no. of cases to be sold for process 1 and 2 be equally
profitable.

Formula:
20X – 100,000 = 24X – 200,000
20X – 24X = – 200,000 + 100,000
– 4X = – 100,000
–4 –4
X = 25,000 cases

The manual process is more profitable if sales are below 25,000 cases while
the automated process is more profitable if sales volume reaches above
25,000 cases. It is important for the manager to have a sales forecast to help
them in deciding which process should be chosen.

3. Danna’s decision to report the incorrect sales forecast to the manager is

unethical because she influenced the decision making process. She is obliged
to report the correct information to the manager and let him decide which is
best for the company and its employees. By revising the projected sales, she
unethically influenced the decision-making process. Her behavior is not
justified by the fact that it will help several employees retain their position. Her
motivation for altering the forecast seems more driven by her friendship with
Jerry Johnson than her concern for the other employees. In doing so, the
conflict of interest arises. Besides, the manager does have a moral obligation
to assess the impact of his decisions on employees, and to be fair and honest
with employees.

Concept/s or Theory/ies Used in Analyzing the Case:

1. Break-even Theory
2. Cost-Profit-Volume Analysis
3. Code of Conduct
Additional Observations/Inputs:

1. As an employee, we are not given the right to decide on our own. We must
consult our superiors first. But we are given the right to voice our concerns.

2. If ever the divisional manager decides to select the automated system, he

may have plans to retrain or relocate the displaced workers in better or vacant
jobs within the company.

Factual Experience:

I have a friend who was working in a certain company detailed in the

collection department. The company then asked for the performance report of
the said department. Upon preparing the report, he found out that one
collector could be fired out of work due to high rates of uncollected accounts
for several months. Poor collection performance for several months is one of
the grounds for dismissal as per company’s policy, hence the probability that
the collector could be fired out is relatively high. My friend is now confronted
with a difficult decision, however, he reminded himself to abide in the
company’s code of conduct. Finally, he made the correct report to the
management and let them decide the fate of the said collector.